Sterling was firm near a three-week high against a broadly weak dollar on Thursday, but slipped against the euro as concerns about the fragile UK economy and the prospect of interest rates staying at ultra-low levels for a prolonged period weighed.
Sterling struck a three-week high of $1.6195 earlier in the day with investors stepping up sales in the US dollar after Moody's warned it could cut US ratings Federal Reserve Ben Bernanke hinted at further policy easing.
But gains for the pound are expected to be limited, with many not ruling out the prospect of further quantitative easing in the UK. Sterling was last up 0.2 percent at $1.6152, with traders citing offers at $1.6160 and then above $1.6200. Still, it has bounced smartly from a 5-1/2 month low of $1.5781 struck on Tuesday. Sterling's bounce has primarily been on the back of a bearish outlook for the US dollar and has had little do with any signs of improvement in the UK economy.
The euro was up 0.3 percent at 88.16 pence, staying above a low around 87.49 pence hit earlier this week when the single currency came under broad pressure on concerns the eurozone debt crisis is spreading. Chartists said any upside resistance for euro/sterling was at the 55-day moving average around 88.39 pence and then at 88.77 pence- the 38.2 percent retracement of the euro's move down from the July 1 peak of 90.84 pence to this week's low.
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